Google, the EU and Competition: Speaking Different Languages

Google has avoided any serious antitrust charges in the U.S., but Europe takes a much more jaundiced view of the way the company has been throwing its weight around. It all comes down to different notions of what is meant by the term "competition" -- and how it affects both consumers and other businesses operating in the Internet search space.

We'll discuss Europe's ongoing investigations into Google, the friction caused by America's and Europe's differing notions of competition, and what -- if anything -- Google can do to appease regulators.

TechNewsWorld: We've been talking about the differences between the United States and Europe, and between the FTC and the European Commission. One of the differences that I've kind of picked up on, and I wanted to get your thoughts on it, is the use of the term "competition."

The word "competition" has popped up a lot in discussing Google in Europe. For starters, it's the European Union Competition Commissioner, Joaquin Almunia, who is always quoted talking about this, and he's been in meetings with Google execs trying to hash things out. And he has used the word "competition" a lot himself. I know last fall
he said, "If effective solutions were found quickly and tested successfully, competition could be restored at an early stage."

So this term "competition" keeps popping up, but I wonder if maybe the term means something different to Europeans, or at least to European regulators, than it does in the U.S. I feel like in the U.S., "competition" refers to the process by which consumers pick out their favorite products, and in Europe it might be more of the process by which companies are allowed and encouraged to enter the market. Do you see there being a bit of a difference between how Europe and the U.S. view competition with regards to Google?

Charles Arthur: I think you've put your finger on it there. In the U.S., it's very much every man for himself: You compete like crazy and you see how things go -- whereas in Europe, the view is slightly different.

So in the U.S., it's not illegal to have a monopoly; and indeed, it's not illegal in Europe to have a monopoly. But in the U.S., it's only illegal to have a monopoly if you then use that monopoly to try to enter another market, and you try to drive others out of that market.

So the classic case is Microsoft, with owning Windows as a monopoly and then driving people out of the browser market with Internet Explorer, where it used its ability to withhold licenses for Windows to make companies making PCs not install Netscape by default. So IBM fell afoul of this and didn't get the code for Windows 95 until a couple of hours before the product was actually going to go on sale, which meant that they fell way behind when it came to selling PCs.

That's one way in the U.S. where there's a problem. But there are three legs to the stool in the US: You have to show that someone's got a monopoly, that they're trying to extend it to another area, and that consumers have been harmed.

Now in Europe, the test seems to be less rigid, in that you only have to show that a company has a monopoly, and that other competitors that want to enter into the market are being harmed.

You don't necessarily have to show consumer harm in the same way, and that I think is a key difference in what Joaquin Almunia is doing in his prosecution of the Google case and what happened with the FTC. Because the FTC said, "Well, there's no harm to consumers, so this whole thing is moot."

Whereas in Europe, the point is made that Google, which has a much bigger share here -- Google here is sort of 95 percent of searches, compared to the U.S., where it's about 65 percent -- so their point is Google basically covers the whole landscape. And if it's pushing its own search results up in the search rankings, then that forecloses on companies that might want to get into that space, and indeed a number of European companies have complained. ...

TNW: When you talk about how the criteria for monopoly in Europe kind of revolves around the idea of being harmed, and how one company is doing harm to another -- does this have to be overt, explicit, going-out-of-its-way to harm a company?

(Imperfect Analogy Warning) There are a lot of instances where, you know, maybe a basketball player is harmed by LeBron James' brilliance, but that's just because LeBron James is so good and he can't help but harm the lesser player. What's the cutoff where you said, "OK, this is a sinister monopoly," versus "OK, this is simply a superior product"?

Arthur: Well, it's difficult, and it's sort of instructive to look at what the Competition Commission usually does. Often they're looking at cartels, where groups of small companies or medium-sized companies get together and try to fix the price of copper tubing. So they decide how much they're going to sell that copper tubing to companies for. And no matter how many places you go around and call, if you need to get a large amount of copper tubing, the price is never going to fall below a certain price.

So what is a monopoly? A monopoly is a cartel of one, where you look around and it's really hard to find anyone who will do what you want to do for a lesser price -- and that, in effect, is sort of the way that Google is being treated. Because its got 90-plus percent of the market, the question is not one of, "Well, where's the harm to the consumer?" The question is, "Well, if advertisers want to do something, or if someone wants to get into the search market and do something different, but they always find that they're shut out, and that all the actions people make and the decisions they make are: How is this going to look to Google?" -- then that becomes the cartel of one. And the question then is how to make the market reasonable so that would-be startups that want to do something in this space aren't going to get crushed immediately. ...